Professional Documents
Culture Documents
4A
McGraw-Hill/Irwin
4A-2
Appendix Outline
4A.1 Making Consumption Choices over Time
4A.2 Making Investment Choices
4A.3 Illustrating the Investment Decision
4A-3
4A-4
Consumption at t+1
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Consumption today
4A-5
Consumption at t+1
$120,000
$100,000
$80,000
$60,000
$40,000
$0
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Consumption today
4A-6
Consumption at t+1
$100,000
$80,000
$60,000
$40,000
Ms. Impatience
$20,000
$0
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Consumption today
4A-7
Consumption at t+1
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Consumption today
4A-8
$30,000
Cash inflows
Time
Cash outflows
0
1
-$25,000
4A-9
Consumption at t+1
$99,000
$82,500
$55,000
$0
$0
$15,000
$40,000
$90,000
Consumption at t+1
$99,000
$85,000
$82,500
$55,000
$0
$0
$15,000
$40,000
$90,000
Consumption today
4A-11
Consumption at t+1
$101,500
$99,000
$85,000
$82,500
$55,000
$92,273 = $15,000 +
$0
$0
$15,000
$40,000
$85,000
(1.10)
$90,000 $92,273
Consumption today
4A-12
4A-13
Quick Quiz
4A-14